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Suppose you are provided the following information as it relates to University Products, Inc. (UPI) capital structure: There are 10,000 coupon bonds which pay an
Suppose you are provided the following information as it relates to University Products, Inc. (UPI) capital structure:
- There are 10,000 coupon bonds which pay an 8% annual coupon with 10 years to maturity and currently have a yield to maturity of 9% (assume annual compounding and face value = $1,000)
- There are 100,000 preferred shares outstanding which pay a $2 dividend per share and currently sells for $15 per share. Par Value is $20 per share.
- The common stock currently sells for $20 per share. There are 1 million common shares outstanding.
- The beta of the common stock is 1.5, the market risk premium is 7%, and the risk free rate is 4%.
- The firms tax rate is 40%.
Using the information provided above, determine the following:
What is the Market Value of the Firm?
$9,358,234
$20,000,000
$21,500,000
$30,858,234
What is the Weight of the Debt?
4.86%
30.33%
60.66%
64.81%
What is the Cost of Common Stock?
4.86%
10.00%
13.33%
14.50%
What is the Weighted Average Cost of Capital?
11.68%
12.78%
13.33%
14.50%
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